CAW Negotiations Framed Future of Canadian Auto Industry

The inking of new master agreements between the Big Three auto makers and the Canadian Auto Workers union traditionally created major upheaval in the Canadian auto industry, and 2005 was no exception.

Financial woes that plagued the two largest auto makers served as an abysmal backdrop to talks that kicked off in July with DaimlerChrysler Canada Inc. the seemingly obvious target with which to start negotiations, as it had the best financials of the Big Three.

In a stunning turn of events, the CAW instead chose beleaguered Ford Motor Co. of Canada Ltd. as the lead company to reach a pattern agreement.

Buzz Hargrove

But CAW President Buzz Hargrove warned Chrysler to be on standby. If a Ford deal did not seem possible before the Sept. 20 deadline, the union said it would switch tracks and make Chrysler the strike target.

It was praised as a shrewd move, giving Ford, with which the union had a good relationship, the chance to set the pattern, while being sensitive to the auto maker’s financial woes.

The CAW did reach an agreement with Ford on Sept. 12, a pact expected to result in an estimated 1,100 fewer Ford jobs in Canada by the end of 2008, when the new 3-year labor contract was set to expire.

Hargrove described the agreement as good “for tough times.”

Essex Engine Plant to Lose V-6

Ford workers in Windsor, Ont., stood to be hardest hit, with plans to close the Windsor casting plant in late 2007 or early 2008, which would have led to the loss of some 430 jobs.

Additionally, the Essex Engine Plant, which employed 700, was to cease production of its V-6 engine, but Ford promised a new, undisclosed engine would be built at Essex, securing the future of the facility and employment for 400-450 workers.

The number of employees on indefinite layoff in Windsor was to grow from 528 to 753 in early October. Hargrove estimated about 996 Windsor employees were eligible for retirement, and the incentive to do so was sweetened.

The CAW secured the smallest wage increase in its 20-year history: 1.4%, 0.9% and 0.9% over three years, supplemented by cost-of-living increases expected to be about 2.0% per year.

The CAW also gave in to demands for a 3-year pension agreement, vs. the previous 6-year pact. For future retirees, there was to be a C$8.00 ($6.74) per month increase in the basic pension benefit spread over a 3-year period. Current retirees were to have a C$4.00 ($3.37) total hike.

The union did not secure any additional time off, also a CAW first.

The pact did secure the future of the St. Thomas, Ont., plant. Ford promised to invest C$200 million ($168 million) to update the Ford Crown Victoria and Mercury Grand Marquis sedans built there.

Ford agreed to continue its C$1 billion ($842 million) investment in its Oakville, Ont., plant, which built the slow-selling Ford Freestar/Mercury Monterey minivans, to create a flexible manufacturing campus and fuel-cell research center.

The auto maker, earlier in the year, showed the Ford Fairlane, a boxy concept based on the CD3 (Mazda6) platform that seated six in three rows. The expectation was the family vehicle was to be a replacement for the minivans, with suicide-hinged rear doors rather than sliding doors, and would be built in Oakville if given the production green light.

Ford also was preparing to unveil the new ’07 Ford Edge midsize cross/utility vehicle and ’07 Lincoln Aviator CUV at the 2006 Detroit auto show. Both were to share the CD3 platform, the 3.5L DOHC V-6 engine and be built in Oakville.

Ford’s 12,500 workers ratified their deal by 95%.

On the salaried side, parent Ford Motor Co. was planning to reduce by 10% its white-collar personnel costs in North America in a sweeping move expected to cut the equivalent of 4,000 positions. It was part of a restructuring plan known as Way Forward, to be detailed in January 2006.

Meanwhile, William Osborne, 45, took over as president and CEO of Ford of Canada Nov. 1, replacing Joe Hinrichs who was called back to Dearborn after only nine months on the job. Osborne had been plucked from the U.S. operations, where he was executive director-Ford pickup truck and commercial vehicles.

Hinrichs, 37, started his stint in Canada Jan. 1, replacing Alain Batty, who moved to Ford of Europe Inc. headquarters in Cologne, Germany, to oversee European sales.

More Investment by DaimlerChrysler

With Ford out of the way, the CAW moved on to Chrysler, reaching an agreement workers ratified by more than 85%, even though it meant their ranks were to be trimmed by about 1,000 over the life of the contract.

Chrysler sought the reduction in keeping with a new modular assembly process designed to improve productivity.

In return, the deal – which matched Ford’s wage and benefit package – provided job security in the form of capital investment. Chrysler promised to sink C$575 million ($491 million) into a new paint shop at its assembly plant in Windsor, Ont., which built minivans and the Chrysler Pacifica.

While production of the Pacifica CUV was expected to move from Windsor to the sister minivan plant in St. Louis, the investment ensured Windsor would be the lead plant in the ’08 rollout of the next-generation minivan, codenamed RT.

Chrysler later in the year announced it would spend $500 million in 2006 to upgrade the St. Louis plant, part of a 4-year investment that could exceed $1 billion. The expectation was St. Louis would gain the flexibility to build minivans for export (the Magna Steyr Fahrzeugtechnik AG & Co. KG plant in Graz, Austria, was to cease minivan production after 2006), as well as the Pacifica, which was expected to share a platform with the next-generation minivans.

St. Louis also was said to be preparing to build minivans for Volkswagen AG, under a deal reached between the two auto makers whereby Chrysler would supply VW with a version of the new RT-based model.

The Windsor plant, nervous that it appeared poised to lose Pacifica and VW production to St. Louis, was told it would be dedicated to Chrysler minivan production for North America, starting in 2007. And its new 185,000-sq.-ft. (17,200-sq.-m) paint shop was to be capable of accommodating up to 11 different body styles and help streamline product development by enabling the plant to build its own prototypes.

The expenditure was part of a larger C$768 million ($640 million) investment, to which the Ontario and Canadian governments contributed C$122.8 million ($103.9 million). Funds also were earmarked for research and development at the University of Windsor/DaimlerChrysler Canada Automotive Research and Development Centre in Windsor.

Some money went to training for 950 new workers with the addition of a third shift at the assembly plant in Brampton, Ont., in April, for the launch of the all-new Dodge Charger 4-door sedan. The plant built the LX line of rear-drive cars (Chrysler 300 and Dodge Magnum).

Chrysler also re-entered the police-car market with a specially equipped version of the Charger that went into production in the fall.

The LX family was poised to grow further with the January 2006 unveil of the Dodge Challenger muscle coupe in Detroit, with Brampton as a possible production site for the car. Chrysler smiled on some key Canadians in 2005.

Windsor native Thomas W. LaSorda became CEO of Chrysler Group Sept. 1, an ascension that was fast-tracked with the announcement then-CEO Dieter Zetsche was to take over as head of Mercedes Car Group on that date, with the sudden resignation of Mercedes chief Eckhard Cordes.

Cordes left DaimlerChrysler AG when he was passed over to succeed DC Chairman Juergen Schrempp. Instead, Zetsche was chosen to take over as chairman Jan. 1, 2006. In Canada, Steven J. Landry, 46, became president and CEO Nov. 1, succeeding Mark Norman, who left the company.

Another Windsor boy made good, Frank J. Ewasyshyn, executive vice president-manufacturing, garnered a number of prestigious manufacturing/engineering awards in 2005.

500 Jobs to be Cut at St. Catharines

Meanwhile, with the Chrysler deal squared away, the CAW turned its sights on the big one: General Motors of Canada Ltd., which had insisted it could not afford to match the pattern set by its domestic competitors.

In the end, GM did approve the same modest wage increases, and the union accepted the possibility of as many as 1,000 fewer GM workers in Canada by the end of the three years.

The workforce in Oshawa, Ont., was to shrink, and the union was unable to secure a promise of new product for the Oshawa No.2 car plant (Pontiac Grand Prix, Buick LaCrosse/Allure) beyond the ’08 model year.

Another 500 workers were expected to be pared from engine operations in St. Catharines, Ont., and job losses at the transmission plant in Windsor, Ont., would be determined by demand for vehicles with those transmissions.

Hargrove said the downsizing would be accomplished without involuntary layoffs, thanks to a C$70,000-per-worker ($59,500) restructuring incentive and a promise from GM to give preferential consideration to displaced employees in future hiring.

The job losses threatened to reduce GM’s hourly workforce to about 16,000, perilously close to the threshold it had to maintain to guarantee continued funding from the Ontario government.

Earlier in the year the province had pledged C$200 million ($170 million) toward GM’s planned C$2.5 billion ($2.1 billion) investment in its Canadian operations. To qualify for the aid, GM had to maintain employment for 16,000 workers, on average, over the life of its deal with the province, which was to expire in the latter part of the next decade.

In October, 17,000 GM workers ratified by 79.6% their new labor contract, concluding another round of negotiations with the Big Three without a strike.

The job cuts proved to be a precursor to the November announcement by parent General Motors Corp. of a restructuring plan for North America.

GM said it planned to close six vehicle assembly plants, two powertrain facilities and two stamping plants by 2008, slashing hourly employment by 30,000 workers and reducing annual North American capacity to 4.2 million cars and trucks.

Included was the decision to cut the third shift at Oshawa No.1 (Chevrolet Impala/Monte Carlo) in second-half 2006, despite its ranking as the most-efficient plant in the 2005 Harbour Report.

GM also confirmed Oshawa No.2 was to be mothballed when the Grand Prix and LaCrosse/Allure models were phased out in 2008, and the St. Catharines engine plant was to close in 2008. The total hit to GM’s Canadian workforce: 3,880.

The outlook was much brighter for Japanese auto makers in Canada in 2005.

Toyota Motor Corp. ended months of speculation with the June announcement it would build its seventh plant in North America in Woodstock, Ont., a town of 34,000 located 25 miles (40 km) from Toyota Motor Mfg. Canada Inc.’s existing assembly plant in Cambridge, Ont.

The Woodstock plant was expected to employ 1,300 workers, who would produce 100,000 RAV4s annually beginning in 2008, initially with engines and transmissions from Japan that eventually would be sourced locally. By 2006, Toyota already had announced plans to increase output to 150,000 units and employment to 2,100.

Toyota weighed expanding the Cambridge plant, which built the Toyota Corolla and Matrix, Lexus RX 330 and a 1.8L engine, but decided instead to invest C$800 million ($650 million) in a satellite plant, part of TMMC, but with dedicated management. Suppliers also were expected to move from Japan to Canada when RAV4 production switched continents.

The plans were to bring Toyota total investment in Ontario to C$4 billion ($3.3 billion). The provincial government chipped in C$70 million ($57.1 million) for the Woodstock plant and the federal government provided C$55 million ($44.9 million).

New Products from Honda, Suzuki

The Woodstock facility was to be the first new greenfield auto assembly plant in Canada since 1986.

It set the stage for Ontario’s continued dominance as a car maker. In 2004, Ontario overtook Michigan as the No.1 vehicle-producing province or state in North America and repeated the feat in 2005 when provincial output of 2,675,788 trumped Michigan’s 2,516,633 total vehicles, including medium- and heavy-duty trucks.

Adding to the Ontario total was Honda Motor Co. Ltd.’s launch of the Ridgeline compact truck at its Alliston, Ont., plant in the spring.

Daily output was increased in May to 330 units from the planned 230 units, but pulled back down in the fall as oil prices rose.

The outlook also brightened for Suzuki Motor Corp. in 2005. The Japanese auto maker showed its Concept X at the start of the auto show season, providing an early look at the next-generation XL7 midsize CUV slated to bow in October 2006.

Suzuki later confirmed the CUV was to be built at CAMI International Inc., a joint venture with GM in Ingersoll, Ont.

The XL7 was to share GM’s Theta platform that yielded the Saturn Vue, Chevrolet Equinox and Pontiac Torrent. CAMI began production of the Equinox on a refurbished line in 2004 and added the Torrent in 2005 on three shifts.

As for the Canadian appetite for new cars, light-vehicle sales in 2005 topped the prior year. Deliveries totaled 1,579,939, 3.2% above 2004’s 1,530,971, the third-best on record for Canada. Only 2002’s 1,699,884 deliveries and 2003’s tally of 1,590,686 were better.

The year’s final four months were hampered somewhat by the pull-ahead of sales in the summer due to generous incentive programs that peaked with a 21.1% year-over-year increase in July. Losses in the final three months of the year averaged less than 1%, and most of the heavy shooters posted declines in December.

Additionally, DC, including Mercedes-Benz, outsold Ford in 2005 for possibly the first time ever. DC’s 232,647 total surpassed Ford’s 223,181. That pushed DC into the No.2 slot behind GM, which posted 2005 sales of 453,984.

In big trucks, International Truck and Engine Corp. (the operating subsidiary of Navistar International Corp.) prepared to launch its second-generation Class 8 heavy-duty trucks and opened a C$35 million ($28 million) research and development center in Windsor, Ont. in October.

The investment was part of a C$270 million ($191 million) investment by International and the Canadian and Ontario governments that staved off closure of a Navistar Class 8 assembly plant in nearby Chatham, Ont., in 2003. The Chatham plant was to be retooled for a new line of LH trucks to debut in 2007, the first compete redesign of the Class 8 truck in about 20 years.

On the supplier side, the CAW in November passed a resolution threatening plant shutdowns and occupations if suppliers demanded wage concessions, benefit package rollbacks or pension reductions from its members.

The pledge to mobilize was on the heels of Delphi Corp.’s bankruptcy filing in the U.S. The supplier was seeking labor-cost relief.

Delphi’s single Canadian plant, an Oshawa site that employed 200, was not included in the Oct. 8 bankruptcy filing. But the CAW feared Delphi’s attempt to wring concessions from the United Auto Workers union would prompt other suppliers to follow suit in Canada.

Meanwhile, well-known supplier Ballard Power Systems Inc. of Vancouver, found itself in a holding pattern in 2005, awaiting the hydrogen economy boom, as it continued to drum up demand for its fuel-cell technology while fending off Wall Street.

The firm, supplemented by development deals with DaimlerChrysler and Ford, was focused on being the leading stack provider by the time commercially viable fuel-cell vehicles were available – which Ballard CEO Dennis Campbell hoped would come shortly after the turn of the decade.

Meantime, the supplier was racking up millions in expenses trying to slash fuel-cell stack costs while boosting quality, performance and durability.

The company’s goal was to meet all U.S. Dept. of Energy fuel-cell targets set for 2010, demonstrating commercially viable powertrains would be ready to power the hydrogen economy. Campbell predicted auto makers would begin utilizing Ballard fuel-cell stacks for actual volume hydrogen-powered cars in 2008.

Wall Street remained skeptical as it watched Ballard burn through cash while revenues declined and Ballard’s partners were taking more responsibility for fuel-cell development in-house.

Ballard planned to cut overhead in the near-term, with the decision by DC and Ford to grab Ballard’s “balance of plant” research effort and forge their own joint venture in Stuttgart. Ballard had been developing the balance of plant – the immensely expensive control mechanism that coordinates the fuel-cell powerplant with the rest of the vehicle – at a significant financial loss.

DC and Ford’s JV was expected to dramatically reduce the balance of plant cost, weight and complexity, leaving Ballard to work on improving the stack’s viability. By 2010, Ballard hoped to introduce stacks on the same cost plane as piston engines.

The company also was courting more business, including potential suitors in emerging markets that were not yet fully vested in petroleum or diesel fuels.

Politically speaking, the year ended with the Canada-U.S. border an unresolved issue. The busiest crossing, at Windsor-Detroit, was said to cost an estimated $18 million annually in lost productivity due to inefficiencies causing delays.

Also of note, the Canadian government, in March, forged an agreement with major car companies to reduce emissions of greenhouse gases by 25% or 5.3 million tons (4.8 million t) by 2010, compared with 1995 levels.

Canada was pushing the requirement under conditions agreed to through the 141-nation Kyoto Protocol, which took effect Feb. 16. Under the Kyoto obligation, Canada needed to cut total greenhouse gases 6% from 1990 levels, a big task given the country was 20% above 1990 levels. Government officials were working to change environmental protection laws to legally enforce the pact with auto makers.

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